The Macroeconomic Identity of Communism

Travels have kept me from posting a new article here in quite a while, however despite the long break, I’d none the less like continue the train of thought from the last article, “It’s The Macroeconomy, Stupid.” [1]

In that article, I start by explaining that a macroeconomic identity, as an accounting identity, is an equality that must be true, no matter what the values of its variables are. I use these economic identities to develop the argument that the goals of the economic elite are not to maximize the level of productive output of the whole economy, but rather to maximize their share of total wealth, at any level of economic output.

This point of view explains the seemingly inexplicable austerity programs being inflicted world wide. Cutting public spending in response to a private debt crisis looks like economic insanity. Understanding that the goal of the economic elite is increasing their share of wealth not the total economic output helps unveil the logic at work.

Class struggle is not a struggle over how much output the entire economy produces, but over the relative portion of wealth that is retained by the contesting classes. The classes that are able to retain the greater portion are able to impose their interests over the others. The class conflict is won by the classes that retain the most wealth.

The proposed macroeconomic identity X = C + Ip – Iw is an expression of the concentration of income, Income concentration is equal to Consumption (C) plus Capitalist Investment (Ip) minus The social capacity of workers to invest (Iw).

This expresses what is really being contested. The owners of the means of production essentially want Iw to be as close to zero as possible, because that portion of workers’ income does not flow back to capital and thus does not reproduce it.

So, if the Capitalists want Iw to be driven down to zero, what would workers’ want? What would these variables look like under communism, a society where the working classes retained the entire product of their labour? Well, to start with, a society that did not to pay tribute to owners and rulers would not necessarily engage in market transactions at all, producing and sharing would likely take generalized and gift forms. However, lets stick with the theoretical and imagine we can express what the value flows might look like, if they where measurable.

Starting again with the identity P + W = C + I, profit plus wages = consumption plus investment, Kalecki broke down C as Cw and Cp to distinguish the consumption of Capitalists from the Consumption of workers. This, however, assumes that no other relevant mode of production exists.

Somewhere, Marx argues that a capitalist commodity can not properly be considered produced until it is consumed. That is, since capital makes commodities, not to fulfill needs or wants per se, but to increase capital, the production cycle is not complete until the product has been consumed and thus created profit. This is sometimes referred to as Valorization. The C in the above identity represents capital valorizing consumption.

However, what about the production that results from what we define as Iw, the social capacity of workers to invest? In order to change the structure of wealth, workers’ must prevent this income flow from valorizing capital and becoming profit, it must instead return to workers.

Thus, for our purposes, P + W = C + I can not be expanded simply as P + W = Cw + Cp + Iw + Ip, because it is not interesting to us whether consumption is by capitalists or by workers, but whether the proceeds of such consumption become profit or flow back to workers. So, let’s replace workers’ consumption (Cw) and capitalists consumption (Cp) with a different breakdown; commons-based consumption (Cc) and market-based consumption (Cm).

Now we have P + W = Cc + Cm + Iw + Ip. We can now separate this out further to reflect the economic power of capital vs the economic power of labour, using P = Cm + Ip and W = Cm + Iw. And thereby derive a rate of exploitation: E = Cm + Ip / Cc + Iw.

Just like Iw represents the social capacity of workers to invest, and thereby the dissolution of capital, it’s counterpart Cm represents that portion of surplus value that is retained by capital but not invested in production. So just as Capitalists need to drive Iw toward zero in order to maintain their class power, Communists need to push Cm towards zero in order to abolish class.

To imagine a macroeconomic identity for communism, no ready means of measuring the totality of I or C would exists as people would not produce and share for exchange value, the ultimate measure would be what did not exist: The need to measure exchange values in order to calculate profit.

Thus, the macroeconomic identity of communism is simple. Cm = 0.

We have achieved communism when everyone can get everything they need without valorizing any private capital. Which brings us back to how we can get there, and counter-politics, venture communism and insurgent finance, I will continue this theme over the upcoming weeks.

In the meantime, I look forward to being at Stammtisch [2] tonight around 9pm, please come by if you can.

7 comments

Must market-based consumption equal zero in the absence of classes? What if workers have no bosses, but instead conduct their labor in worker-cooperatives and participate in markets directly, without non-working, capitalist middlemen?

KLP, it’s possible that such consumption could be OK, but that would depend on the relationships between the consumers and these co-operatives. If consumers where not member-owners of the co-operative they where buying from, or shared wealth with them by some means, then members of the co-operative could accumulate wealth at the expense of non-members, and thus gain the possibility to exploit them. Such a co-opertive economy could certainly be advantageous and likely even a step towards communism (as both Marx and even Lenin have argued), but so long as you have production for exchange instead of production for use, you’re not there yet. “Venture Communism” attempts to address this issue by having the productive assets of many co-operatives collectively owned by their individual members.

KLP, but not the one they are buying from. Thus, an unfair distribution of productive assets between co-opertives could allow members of one to exploit members of another, unless some other way of sharing wealth existed.